Is Your Board of Directors Inadvertently Breaking the Law?

The last thing you expect to do when you volunteer your time and expertise by serving on a board of directors is to break the law. Abiding by the law is not as simple as making sure you do not commit any crimes, however. It also includes complying with the statutes set forth by the California legislature. Easy enough, right? Not when the statute is written in such a way that even lawyers are not able to adequately interpret its meaning.

Such was the case with Corporations Code Section 5047, the statute that governs nonprofit corporate “directors.” Section 5047 was originally written in such a way that resulted in considerable ambiguity regarding the voting rights of board members. In a nutshell, the legislature intended to establish that there is no such thing as a non-voting nonprofit board member. It just wasn’t written with enough clarity to guide nonprofit organizations and their legal advisors to be sure they were complying with the law.

As a result of the confusion, the California Legislature recently passed a bill to amend Section 5047. The amendment makes it very clear: The meaning of “director” does not include a person who does not have the authority to vote as a member of the governing body. What does that mean for you? It could have major consequences if you have “non-voting” or “ex-officio” members on your board of directors.

If so, your board of directors needs to decide whether or not you should make the non-voting members now voting members, or if you should remove those non-voting members from the board. Changing non-voting members to voting members can result in conflict of interest issues, and could get you in trouble with the IRS as well.